Credit cards: Maria Bekiaris Ways to boost your re­wards

A “free” flight sounds tempt­ing ... but do run the num­bers to en­sure you’re get­ting a good deal

Money Magazine Australia - - CONTENTS - STORY MARIA BEKIARIS

Peo­ple love the idea of get­ting some­thing for noth­ing. But if you’re not care­ful a re­wards credit card could end up cost­ing you rather than re­ward­ing you. And it doesn’t help that many providers have now wa­tered down their re­wards pro­grams. “The Re­serve Bank changed credit card in­ter­change reg­u­la­tions, which meant that the banks that is­sue your credit cards earn lower rev­enues for pro­cess­ing your trans­ac­tions,” says Steve Mick­en­becker, group ex­ec­u­tive, fi­nan­cial ser­vices, at Canstar. “To main­tain prof­itabil­ity of the credit card, this has meant that they have had to cut back on the ben­e­fits you re­ceive or charge a higher fee. Gen­er­ally they have cut back on re­wards pro­grams.” Most af­fected are the com­pan­ion card deals where you re­ceived an Amer­i­can Ex­press card and a Visa or Mastercard, says Mick­en­becker. “The Amex card typ­i­cally earned two or three points per $1 and the Visa/Mastercard one point. The banks have closed down these prod­ucts, and the re­place­ment cards can typ­i­cally earn around one to two points per $1 spend but with points tier­ing and cap­ping.” Com­mBank, for ex­am­ple, is the lat­est bank – and the last of the big four – to drop Amer­i­can Ex­press com­pan­ion cards thanks to the Re­serve Bank re­forms in July last year.

So are re­wards credit cards worth it? The an­swer is – it de­pends. The first is­sue to con­sider is whether you can stay on top of your debt. “Re­wards cards can be great if you re­pay your card in full and on time each month but that is not ev­ery­body,” says Mick­en­becker. Re­ward cards al­most al­ways carry a higher in­ter­est rate and fee. “So if you’re leav­ing debt on your card it’s a good idea to be look­ing for a low-rate card in­stead.” This was high­lighted in re­search by the reg­u­la­tor ASIC, which found that credit cards can be a debt trap for more than one in six con­sumers. It es­ti­mated con­sumers could have saved about $621 mil­lion in in­ter­est in 2016-17 if they had used a lower-rate card. The next ques­tion: how much do you spend on your card. You do need to spend a fair bit to get any value. “It takes an ex­tended pe­riod to build up rea­son­able re­wards, in par­tic­u­lar for flights, on an­nual spend­ing much be­low $24,000,” says Mick­en­becker. “Ag­gra­vat­ing this, re­wards cards usu­ally have higher an­nual fees. There are ex­cep­tions, how­ever, with no-fee re­wards cards and some cards that give you a free an­nual flight.”

If you de­cide a re­wards credit card is for you, make the most of it to max­imise the points you earn. Here are seven ways to do it.


The ob­vi­ous place to start is to make sure you have the right credit card. Think about how much you spend each year, what type of re­wards you are most likely to use and whether the card

costs are less than the re­wards. “Choos­ing the right card can max­imise the earn rate of points and the value of the points,” says Mick­en­becker. “Cards typ­i­cally earn as lit­tle as 0.5 points of $1 spent or as much as 2.5 points. The value of your points on re­demp­tion and the an­nual card fee also come into the equa­tion.” (For more on choos­ing the right card see break­out.)


If you’re think­ing about get­ting a new re­wards credit card, then look out for bonus of­fers. Some providers of­fer bonus re­wards points when you ap­ply for and are ap­proved for a cer­tain credit card or you spend a cer­tain amount in a cer­tain pe­riod. If you’re not get­ting the best deal con­sider switch­ing.

“Bonus point of­fers are def­i­nitely worth con­sid­er­ing as they are a quick way to get a cheap flight,” says Steve Hui, founder and CEO of iFLYflat. It could take years to earn the amount of bonus points you might be able to get for sign­ing up. For ex­am­ple, at the time of writ­ing St.George is giv­ing away 50,000 bonus points to cus­tomers who sign up for a new Am­plify Plat­inum credit card and spend at least $2000 on el­i­gi­ble pur­chases made with the card within 90 days of card ap­proval. As the earn rate is one point per $1 spent you’d need to spend $4167 a month on the card to earn those points in a year.


“Put as much as you can on your credit card,” says Hui. Look at ways to use it more. Use it for ev­ery­day pur­chases even if they’re small. For ex­am­ple, you can earn more points by mak­ing other small changes, such as down­load­ing a cof­fee app and link­ing it to your card or link­ing it to your PayPal ac­count and us­ing it for on­line pur­chases.

There are pro­vi­sos for putting all your spend­ing on the card, warns Mick­en­becker. “Don’t di­rect spend to your card if there is a sur­charge for us­ing it, as for most cards the points in­cre­ment does not cover the sur­charge. Im­por­tantly, never spend more to earn more points – it doesn’t pay and can hurt your fi­nances.” Of course, you should only spend up big if you know you can pay off your card in full – there’s no point spend­ing up big just to be hit with a big in­ter­est bill.


An­other op­tion sug­gested by Hui is to use it to pay for group bills such as din­ner with friends or even movie and con­cert tick­ets. Pick up the en­tire tab rather than split­ting it and ask your friends to trans­fer their por­tion to you.


Find out if there are any busi­nesses part­nered with your re­wards card that let you earn points at a higher rate. For ex­am­ple, you may be able to earn three points for ev­ery $1 by shop­ping at a par­tic­u­lar store. If you have a su­per­mar­ket-branded credit card you may be able to earn points through the su­per­mar­ket pro­gram as well. For ex­am­ple, Wool­worths shop­pers can earn fre­quent flyer points us­ing the Wool­worths Re­wards

pro­gram and if they use their fre­quent flyer card they can earn points that way as well.


Make your part­ner a sec­ondary cardholder. They’ll get their own card and if you get them to use the card for all their pur­chases too this will in­crease your earn­ing po­ten­tial. See if a fee ap­plies and that it’s not too high.


Check the rules about re­wards ex­piry and make sure you use your points. For ex­am­ple, Qan­tas has a “soft” ex­piry and your points won’t ex­pire as long as you earn or use Qan­tas points through your ac­count at least once ev­ery 18 months. Hui says it can be as sim­ple as mak­ing the small­est pos­si­ble pur­chase us­ing your points so that you keep them alive. SPEND YOUR POINTS So you have fol­lowed all these tips and built up a de­cent num­ber of points. Your next de­ci­sion will be how to get the most bang for your buck when you re­deem your points. If you have been build­ing up points in the hopes of scor­ing a free flight, Mick­en­becker says in­ter­na­tional is gen­er­ally bet­ter value than do­mes­tic. “But watch for taxes over and above the points,” he warns.

You may have heard that up­grad­ing to busi­ness class is the best way to use your points but Hui says that is no longer the case. “My view is that out­right busi­ness class re­demp­tion is the best way to use your points,” he says. Up­grades used to be the best way but they now cost about 90% of the points needed for a busi­ness flight, he adds.

Hui of­fers this ex­am­ple. A flight from Syd­ney to Lon­don in busi­ness class will cost you 256,000 Qan­tas points, plus you’ll have to pay taxes. A dis­count econ­omy ticket to Lon­don will set you back about $1800 plus you’d need to use 240,000 Qan­tas points.

If you’ve been fo­cus­ing on re­ward­ing your­self with a lit­tle shop­ping trip you’ll need to choose be­tween vouch­ers or mer­chan­dise. The surest way to make sure you’re get­ting the best value is to cal­cu­late the “point cur­rency”. This is ba­si­cally how many points you need to get $1 of a re­ward. So, for ex­am­ple, if you need 7000 points to re­deem a $50 gift card, the point cur­rency is 140 for each $1.

You can use the point cur­rency to com­pare re­wards – the lower the num­ber the bet­ter. So let’s say 7000 points gets you a $50 gift card (140 points) or you could get a $60 toaster for 8000 points (133 points). You’d be bet­ter off get­ting the toaster. Or if you could get a flight from Syd­ney to Mel­bourne worth $200 for 17,000 points, the point cur­rency is 85, so that def­i­nitely comes up trumps.

If you’re think­ing about us­ing your points for mer­chan­dise, find out the best price you can get the item for at a ma­jor re­tailer. That toaster you had your eye on might be on sale for $50 so you might con­sider re­deem­ing your points for a gift voucher to that store to take ad­van­tage of that great price. If it is a spe­cial, though, you will need to make sure you’ll get the voucher be­fore it goes back to the nor­mal price.

‘ Check the re­wards ex­piry – the small­est pos­si­ble pur­chase can keep them alive

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